What Makes a Natural

Gas Marketplace Work?

July 9-13, 2007
Accra
 TOPIC I:
Resource & Infrastructure
Investment for Delivery

Key value chain components

Physical Infrastructure
 Gathering
Removal of basic sediment & water
Collection through
g field and g
gathering
g lines for
removal of free liquids and extraneous materials
Gas may also be sweetened with chemical agents
to neutralize sulfur compounds and carbon dioxide
From 2 inches to 24 inches in diameter
Higher
g p
pressures than transmission linesup p to
2160 psi (150 bar)
Generally, feed gas processing facilities
 Processing
Liquefy the heavier molecules that occur in
the gas stream in order
to make the gas production marketable and
safe for pipelines, and
to increase profits from the lease (non-
methane molecules are marketable)
Wet gas contains a higher proportion of
larger molecules as well as oil condensate
as opposed to dr
dry gas
gas.
Natural Gas Products
 Pipeline Transportation
Line pipehigh strength carbon
steelseamless or welded (>24-
inch) ~$25,000 per inch-km
Strict
St i t metallurgical
t ll i l standards
t d d
(dictated by API in the US)
Pipe
Pi joints
j i t are welded
ld d ttogether
th
Pipe CoatingFusion Bond
Expoxy (FBE)
(FBE)--Used
Used to prevent
external corrosion
 LNG Transportation
Liquefaction allows moving
of gas at one sixth the
volume to distant markets
Gas from LNG can be
o ed by p
moved pipeline
pe e o or used
directly for power
generation or trucking
g g
 LNG Value Chain

EXPLORATION & REGASIFICATION

LIQUEFACTION SHIPPING
PRODUCTION & STORAGE

$0.8- $0.4-
$0.5-$1.0/MMBtu $0.3-$0.5/MMBtu
$1.20/MMBtu $1.0/MMBtu

TOTAL = $2.00 - $3.70

Greatest variability is in upstream feedstock for liquefaction and shipping
distance.
Sources: Industry (estimates exclude some O&M and tax costs)
 Gas to liquids
Gas-to-liquids
GTL allows natural gas to be transported
and used as liquid (as an alternative to
middle distillates)
Capital costs for GTL plants have been
declining
dec g from
o roughly
oug y $50,000 pe
per ba
barrel
e o
of
capacity to the $20,000 range.
O&M costs have been estimated as low as
$5 per barrel.
 Compressor Stations
The compressor or pumping
station is the engine that boosts
pressure and moves gas (1,300
(
psi 90 bar)
Typically installed every 40 to 100
miles
il - depending
d di on number b off
compressors & HP, and diameter
of pipe and volume to be moved
Stations
St ti also
l typically
t i ll h have liliquid
id
separators in the form of
scrubbers, strainers or filter
separators.
separators
 Metering & Regulation
Metering Stations are the cash
register
g of the industry
y
--Orifice meters
--Turbine meters
--Ultrasonic meters
--Positive displacement meters

Regulation serves to
reduce pipeline pressure to
an acceptable
p level for
distribution and end use
 Operations
Mainline valves spaced 5 to
20 miles apart depending
on population density and
safety
y codes
Allow isolation of pipeline
segments for maintenance
andd emergencies
i
 Operations
Supervisory Control and Data
Acquisition (SCADA) is a
communication system to monitor and
control certain equipment on the
pipeline
Transmits
T it operating
ti status,
t t flow
fl
volumes, pressure and temperature
data from compressor stations, M&R
facilities and valves to a gas control
facility for daily operations
Facilitates nominations,
nominations scheduling
procedures, allocations & billing
 Operations
p
Integrity Assurance
--Aerial Patrols
--Pipeline
Pipeline Markers
--Damage Prevention Program
--Cathodic Protection
--Pipeline Pigging
--Leak Detection Surveys
 Distribution
From citygate to customers via small-
diameter pipe (<12-inch)
Traditionallyy steel, but increasingly
gyp polyethylene
y y
(PE) or high density PE (HDPE)
$370 per 100 ft for 4-inch, $760 per 100ft for 6-inch
~3 psi of pressurization
Mercaptan (NG is odorless)
Metering & billing
~50%
50% of end
end-user
user price (U
(U.S.)
S)
 Distribution metering
Residential & small commercial meters (~5
psig) cost about $125-175
Remote sensor another $160
Industrial meters (~175 psig) cost anywhere
from $1,000 to $6,000
Additional cost of $1-2,000 on related items
 Storage
Gas storage supplements
pipeline deliverability in
peak demand winter
periods
Generally, storage fields
are depleted reservoirs,
aquifers or salt caverns
In distribution regions,
there are smaller LNG
storage facilities used for
peak shaving
 TOPIC I:
Resource & Infrastructure
Investment for Delivery

Investment considerations
 Where is Natural Gas Used?
Residential uses: cooking, water heating, space
heating and/or cooling.
Commercial uses: space heating, water heating,
andd cooling.
li
Transportation uses: CNG, LNG as fuel (~2.5
million
illi vehicles
hi l worldwide)
ld id )
Power generation: Steam, simple cycle, combined
cycle micro turbines
cycle, turbines, fuel cells
 End Use Equipment &
A li ti
Applications
Commercial chilling and
dehumidifying
absorption chillers provide cool air by
evaporating a refrigerant like water or
ammonia - best suited to cooling large
commercial buildings, like office towers and
shopping malls.
desiccant systems cool by reducing
humidity in the air - cooling this dry air
requires much less energy than it would to A Desiccant Unit Atop the Park
cool humid air
air. Hyatt Hotel
Hotel, Washington D.C.
DC
 Distributed Generation
With technological advancements, there is a
trend towards what is known as 'distributed
generation'
placement
l t off individual,
i di id l smaller
ll sized
i d electric
l ti
generation units at residential, commercial, and
industrial sites of use.
small scale power plants, which are primarily
powered by natural gas, operate with small gas
turbine or combustion engine units, or natural
gas fuel cells.
 DG options

A micro turbine

A small-scale
ll l
conventional turbine

A Fuel Cell
Cogeneration Plant
 Combined heat & power
CHP systems have applications both in
large centralized power plants, and in
distributed generation settings.
Cogeneration systems have applications in
centralized ppower p
plants,, large
g industrial
settings, large and medium sized
commercial settings, and even smaller
residential or commercial sites.
The key determinant of whether or not
combined heat and power technology would
be of use is the nearby need or purpose for
the captured waste heat.
 Where is Natural Gas Used?
Industrial uses:
base ingredients for such varied products as plastic,
fertilizer, anti-freeze, pharmaceuticals and fabrics
pulp and paper
paper, metals,
metals chemicals
chemicals, petroleum refining
refining,
stone, clay and glass, plastic, and food processing
waste treatment and incineration,, metals preheating
p g
(particularly for iron and steel), drying and
dehumidification, glass melting, food processing, and
fueling industrial boilers
 Industrial uses
Feedstock for methanol,
fertilizer, other
petrochemical and chemical
Industrial drying and
burners
bu e s (s
(steel
ee
manufacturing)
Cold captured from LNG for
electronics
 Pipeline Economics
Costs associated with pipeline construction
depend on many factors
factors.
the cost per mile increases with the pipe size.
construction on land using a 12-inch pipeline costs about
$300,000 per mile while using a 42-inch pipeline costs almost
$1.5 million per mile.
costs increases if the p
pipeline
p g
goes through g
residential areas, or there are roads, highways and
rivers on the way.
costs
t are dependent
d d t on location,
l ti tterrain,
i population
l ti
density, or other factors (for instance, different labor
and tax laws in different countries).
 Pipeline Costs
The most important are material and labor costs -
70 to 80% of the total construction cost both
onshore and offshore.
Surveying,
S i engineering,
i i supervision,
i i
administration and overhead, telecommunications
equipment freight
equipment, freight, taxes
taxes, regulatory filing fees
fees,
interest, contingencies (all covered under
Miscellaneous). )
Right-of-way (R.O.W.) and damages
 Estimated Pipeline Construction Costs
per Mile and % of Total: Onshore
1995-1996 2000-2001 % Change

Material $274,210 (31%) $279,565 (21%) 2%

Labor $422 610 (47%)

$422,610 $571 719 (44%)
$571,719 35%

Miscellaneous $154,012 (17%) $344,273 (26%) 124%

R.O.W. and $48,075 (5%) $120,607 (9%) 151%

Damages
Total $898 907
$898,907 $1 316 164
$1,316,164 38%

Source: Oil & Gas Journal, Pipeline Economics Survey, various issues.
U S average: $1 million/mile,
U.S. illi / il $6-8
$6 8 million/mile
illi / il ini urban
b areas
 Estimated Pipeline Construction Costs
per Mile and % of Total: Offshore
1995-1996 2000-2001 % Change

Material $684,604 (42%) $413,995 (16%) -40%

Labor $
$527,619 (33%) $1,537,249
$ 191%
(60%)
Miscellaneous $396,394 (25%) $510,271 (20%) 29%

R.O.W. and $3,201 (0%) $116,898 (4%) 3,552%

Damages
Total $1,611,818 $2,578,413 60%
Source: Oil & Gas Journal, Pipeline Economics Survey, various issues.
 CEE High, Mean and Low
C
Construction
t ti Cost
C tEEstimates
ti t
CEE pipeline cost estimates for
natural
t l gas